With credit hard to come by and deteriorating market conditions and sentiment, 2009 is the year to prove your worth and keep the company on track. Christian Annesley runs the rule over next year’s priorities.
In January 2008 what were your business plans for the year? And how have things turned out?
In all probability there is a gap between your more optimistic expectations for 2008 and the challenging reality you have encountered. But if 2008 has proved a minefield, potentially that’s nothing compared with plotting a meaningful course through 2009 and beyond. And yet every business leader in the region is having to do just that.
Not surprisingly, most directors are extremely cautious about their prospects for 2009. Nationally, a CBI survey in October indicated that five times as many company heads expected business conditions to be worse next year than those who expected improvement – and the gap between the bulls and the bears has widened since then. While in October 74 per cent felt it would get worse (and 40 per cent much worse), by mid-November the number had climbed to 78 per cent (with 43 per cent in the ‘much worse’ camp). Fourteen per cent expected improvement in October, slipping to ten per cent by November.
The South West has a high proportion of small and medium-sized businesses, and it is among mid-sized companies that pessimism remains greatest, says the CBI. Those in the media/technology sector are least pessimistic, which at least brings some cheer to this technology-strong region.
Directors see the roots of the current situation in the credit crisis and the general lack of confidence in the UK and world economies. This, coupled with higher costs, has prompted a drop-off in demand across nearly all sectors, which has pushed the country to the brink of recession and hit company orders.
With so much at stake, here is Insider’s low-down on surviving and thriving in 2009.
HOW TO PLAN
Top of the immediate priority list for many company heads is financing. “It is challenging to get good lending terms from the banks just now, so if you have a decent arrangement in place don’t rock the boat,” says Stephen Gratton, senior partner of Ernst & Young’s Bristol and Exeter offices.
“That means keeping within your banking covenants to avoid renegotiating terms. But if you need additional financing, leave yourself plenty of time to negotiate as the process is likely to take longer.
Also try to forward plan your cash flow and finance – preferably for 2009 and 2010. Having a two-year view of your needs is likely to pay off in the current climate.”
Ellis Organ, finance director at Clifton Asset Management and a member of the government’s Small Business Finance Forum, also makes the point that while some banks, such as the Royal Bank of Scotland, have pledged to freeze overdraft charges for small business customers, it doesn’t change the fact that covenants must not be broken.
“All the bank is saying is it will stop reducing overdraft facilities for businesses that stay within their limit – merely honouring what has already been agreed. Clearly there remains little protection for businesses that are unable to stay within their limits.”
For John Cox, managing director of Newton Abbot stationery business 2020 Plastics, planning means installing a new stock control system for greater visibility of the value of stock held.
“That improved visibility will give us greater financial control and allow the company to build stock holdings to higher levels than previously. It will allow us to react more quickly when small orders come in.”
And planning should also embrace staff development and your corporate social responsibilities, says Peaches Golding, regional director at Business in the Community. “No matter what pressures you face, 2009 shouldn’t just be about hunkering down,” she says. “Stick with your staff development programmes and create new ones if you want to keep your staff healthy and happy and able to work at their best for the benefit of the business.”
HOW TO INNOVATE
Innovation can open up new markets if your existing revenue streams are under pressure.
Dave Broadway, managing director of Radstock-based document processor CFH, has launched Docmail to expand CFH’s business proposition, which until now has concentrated on developing high-volume bespoke mailing arrangements for businesses. Docmail is a web-based system that allows smaller businesses to use a commoditised version of CFH’s mailing service.
“Launching the product to coincide with the downturn was more luck than judgement, but innovating to develop new markets is always part of our plan,” says Broadway. “Since we are in the business of saving costs for our customers, we shouldn’t be too affected by the slowdown, but expanding the reach of the business makes sense.”
Innovation is also about being alive to opportunities, and Ian Birkett, managing director of Bristol-based IT support company Three Cherries, says his business is in a position to benefit from its close relationships with customers. This has led to the business taking a 75 per cent stake in a customer’s company with a vision to bring in new strategies and process change to turn the business around.
But innovation isn’t just about making dramatic changes. It can also mean rethinking some of your day-to-day activities. Kevin Bond, managing director of Somerlap Forest Products in Somerset, says he is looking to be more innovative with some of his marketing and sales promotions, putting in place new discount structures for customers, among other incentives.
HOW TO GROW
Some businesses are bound to struggle in the year ahead, so if you have the money in place it could mean there are bargains to be had when businesses are forced to sell.
“My prediction is that the cash crisis will really impact on insolvency levels by the spring,” says Simon Girling, a partner in the business restructuring team at BDO Stoy Hayward. “If you can get your own finances in order and manage your working capital effectively you could be well-placed to take advantage once others go to the wall.”
For those with ambitions beyond the UK, another avenue to explore is whether there is scope to sell into new markets overseas. Asia accounts for 57 per cent of the world population and Andrew Dancey, RBS’s regional director for global banking and markets in the South, says export markets there and in other emerging markets could transform a company’s fortunes.
“Selling into other countries or setting up offshore presents lots of challenges, but banks like RBS have a presence in many markets and can help you make the leap and manage currency risks and other potential pitfalls.”
HOW TO PROTECT
One business risk that has massively escalated recently but gone relatively unnoticed is that credit insurers are becoming more cautious about offering their cover to businesses.
Credit insurance protects companies by ensuring they get paid for goods and services they supply, and everyone from SMEs right up to large corporates need it. But even with big companies such as Woolworths going under, the insurers are running scared about possible big payouts – and some are turning off the tap.
BDO’s Simon Girling says credit insurers’ wariness means the relationship between retailers and suppliers is under real threat at the moment.
“If a credit insurer stops providing cover and you can’t find a viable alternative that is really bad news,” says Girling. “Companies can quickly fail without the lifeblood of credit insurance. If your retail business relies on it, my advice is to get to know more about your suppliers as soon as possible. To be trading with you in the first place they will have trade credit cover in place, but you need to find out as much information as you can.”
And if you are a supplier company similar rules apply, says Girling. “Open up a dialogue with your insurer about cover and keep your customers in the picture.”
David Thomson, chief executive of Close Invoice Finance, says Girling is right, and the risks involved are growing. “The feedback from credit insurers is worrying. Credit insurance cover from the likes of Atradius is being pulled back across the retail sector as insurers manage down their exposures, and I would advise affected companies to start making conservative plans to ensure the survival of the business should the worst happen.
“That might sound dramatic, but I think it’s warranted. You need to be prepared to retrench to survive if necessary. Get as much credit guidance as you can about your customers from third-party providers and get close to your financiers.
“The key is to still be standing once the UK comes out of this recession.”
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